Few investors or others have thought through the under-appreciated and highly-problematic implications for communications-dependent Google Inc. of the FCC reclassifying broadband as a Title II service.

Summary

This analysis explains the unintended-consequence-risk to Google’s core business of FCC Title II regulation of broadband.

First, it shows how Title II regulation would necessarily and broadly apply to Google’s business.

Second, it explains that strict Title II privacy regulation would immediately apply to Google.

Third, it would escalate legal and privacy risk from Google’s widespread wiretapping.

Fourth, it would bring more regulatory attention to Google’s very poor EEO/diversity record.

Lastly, it would spotlight Google’s hypocrisy of calling for FCC regulation to protect Google from “blocking, discrimination and paid-prioritization,” when the evidence shows much of Google’s business is based on blocking, discrimination, and paid-prioritization.

Analysis

First, Title II is maximally-broad, not surgical. Based on eighty years of highly-developed case law, Title II presumptively would apply maximally to every telecommunications service. If currently-unregulated broadband information services were classified as a “telecommunications service” it could put at immediate risk many of the component segments of Google’s network that involve pure “telecommunications” transmissions -- like You-Tube streams, search results, Android voice transmissions, Gmails, etc.

The 2005 Supreme Court Brand X decision underscores this real risk. It says: if the Communications Act classified “as telecommunications carriers all entities that use telecommunications inputs to provide an information service”… The Act “would subject to mandatory common carrier regulation all information service providers that use telecommunications as an input to provide information service to the public.” … “The relevant definitions do not distinguish facilities-based and non-facilities-based carriers”… so reclassifying would “subject to common carrier regulation non-facilities-based ISPs that own no transmission facilities.”

Remember under Title II precedent, the FCC previously-regulated: Yellow Pages directories (the analog equivalent of a search engine or an information aggregation website), phones and accessories (the analog equivalent of Android devices), video dial-tone transmissions (the analog equivalent of YouTube transmissions) and 1-800 service (the analog equivalent of an app on Google Play) – to name just a few of the analog-digital overlap uncertainties.

Under the law, the process to forbear from applying Title II regulation is Title I section 10. This authority generally was designed to allow an entity subject to Title II regulation to petition the FCC to be exempted from the law. The law then requires the FCC to undergo a very fact-intensive and time consuming administrative process to determine if the specific forbearance is warranted. And any FCC forbearance decision then can be challenged in court, if the FCC does not follow the requisite procedure, process and/or facts.

Simply, large swaths of Google’s (and other Internet companies’) business would be presumptively Title II regulated until the FCC could specifically and successfully forbear over a period of time. Unfortunately, this Title II risk and uncertainty overhang would last until all potential challenges and appeals were exhausted, which could take several years -- for each petition for forbearance.

Simply, Google’s valuation and business model, which presumes unregulated “innovation without permission,” would face enormous business uncertainty if broadband was reclassified as an FCC Title II regulation because Title II is the penultimate permission-required regulatory regime.

Second, Google would instantly be in mass violation of Title II privacy law. Google’s entire business model depends on its users having no legal expectation of privacy or any statutory privacy regulation. If broadband information services are Title II regulated, they must comply with 47 U.S.C. Section 222 entitled “Privacy of Customer Information” which has strict requirements protecting the “confidentiality of customer proprietary network information.”

Google, which runs one of the largest Internet networks in the U.S., arguably collects stores and leverages more customer proprietary network information and user identifiers than any entity ever has – see here. If broadband information services were reclassified as Title II telecommunications -- most of Google’s business instantly would be in serious violation of Section 222, and potentially subject to legal injunction by a court to cease and desist from the newly determined illegal privacy behavior.

It would be especially problematic for the FCC to forbear from section 222 for Google, when Google has more private customer information, more business incentive to leverage it, and more market power/share to abuse it, than any other company that would be subject to Title II regulation. The headline and actual risk of Title II privacy regulation to Google’s franchise could be enormous.

Third, the FCC would have more authority to address Google’s widespread wiretapping. If Google were under Title II regulation it could be more likely for the FCC to reopen its Google Street View wiretapping investigation that Google had previously-obstructed per the FCC. In 2012, the FCC fined Google $25K because Google "deliberately impeded and delayed the Bureau's investigation" into Google Street View’s alleged wiretapping per the FCC’s enforcement Notice. The FCC also indicated in its enforcement Notice that Google's lack of full cooperation made it impossible, at that time, to determine if Google violated the law prohibiting wiretapping or not. That seminal legal determination has now been largely settled legally by an Appeals Court.

Last fall, the Ninth Circuit Court of Appeals ruled that wiretap law prohibits the type of transmission “interception” that Google StreetView cars’ did in secretly collecting personal information from unencrypted home WiFi networks. Specifically, this court denied Google’s claim that not encrypting one’s WiFi made the transmissions public. And this court also denied Google’s claim it was due the law’s exception designed to protect radio stations. Now the FCC has a Federal Appeals Court ruling of law that could greatly assist the FCC in enforcing Google’s violations of federal wiretap law.

Adding fuel to this wiretapping vulnerability, Federal District Court Judge Lucy Koh separately ruled that Google’s scanning of Gmail exchanges to create personal advertising profiles also could violate federal wiretap law. Specifically, Judge Koh ruled that Google was not exempt from wiretap law because creating personal advertising profiles by reading people’s emails was not an “ordinary course of business.”Judge Koh also found that “accepting Google’s theory of implied consent… would eviscerate the [wiretap] rule against interception.”

Currently Google is furiously trying to settle private wiretapping class-action cases to limit their clear liability here. It is surprising that Google would risk the FCC refocusing on Google’s potentially massive latent privacy liability under wiretap law.

Fourth, Title II regulation would put and keep Google’s poor EEO performance in the spotlight. Broadband companies that have been subject to cable and Title II telephone regulation historically have had strong EEO records. Google’s just released EEO numbers indicate Google is 70% men, 61% white, 30% Asian, 3% Hispanic, and 2% Black.

Google’s very poor diversity record relative to Title II and cable historically-regulated providers, is a particular problem for Google Fiber because the key to Google Fiber’s fiber-deployment “innovation” and business model is the anti-Title-II freedom to “redline” local communities and exclude less-profitable neighborhoods which happen to be disproportionately communities of color.

It is additionally problematic because Google is also pushing for the FCC to set a zero-price for its downstream “long distance” data traffic to consumers. That is particularly problematic for a company with a very poor diversity and redlining record because this type of “long distance” traffic in a Title II world is by law supposed to fund Universal Service subsidies for underserved and disadvantaged urban and rural areas.

Ironically and sadly, Google and other Internet companies’ cynically use the pejorative rhetoric of “discrimination” to politically enhance their self-serving net neutrality business purposes. In their letter to the FCC: “According to recent news reports, the Commission intends to propose rules that would enable phone and cable Internet service providers to discriminate both technically and ﬁnancially against Internet companies and to impose new tolls on them. … Instead of permitting individualized bargaining and discrimination, the Commission’s rules should protect users and Internet companies on both ﬁxed and mobile platforms against blocking, discrimination, and paid prioritization…”

It is particularly disturbing and hypocritical, that Google cynically misapplies and diminishes the word “discrimination” for its own financial and brand gain when Google’s own very-poor diversity records and redlining practices suggest Google has a very real economic and racial discrimination problem in its own business operation.

Lastly, Google routinely engages in blocking, discrimination and paid-prioritization. It is remarkably hypocritical that Google would push for maximal preemptive regulation of others’ business practices when Google itself routinely and broadly engages in the business practices that it claims should be banned and maximally-regulated.

Concerning blocking, “after Google bought Nest, it removed one of the company’s biggest competitors from its search results” per Pando Daily this week. Google’s Panda 4.0 search update recently eliminated 80% of eBay’s best search listings per Business Insider. To see other sites blocked -- including many sites of Internet start-ups and entrepreneurs -- by the Panda 4.0 update, please see this U.S. list from Search Metrics.

Concerning discrimination, with 70% market share, much greater share than any broadband provider has, Google routinely anti-competitively ranks its own products and services above competitors in its own purported “unbiased” search results.

Concerning paid-prioritization, Google Shopping is totally a paid-prioritization business model. Danny Sullivan of Search Engine Land has an excellent accountability post entitled: “Google’s broken promises and who’s running the search engine?” In great detail, the analysis shows how for eight years Google publicly represented paid-prioritization in search to be “evil,” but then in 2012 Google quietly flipped the model completely for Google Shopping that required payment for inclusion it Google’s search shopping results – what Google has derided as “pay-for-play” elsewhere.

To this day, most people do not appreciate that Google shopping results are not transparent search results but actually paid advertisements. Google’s business practices here would likely not pass muster of the Title II utility business regulations that Google wants to impose on its broadband direct competitors.

Concerning the “commercially reasonable” standard that Google opposes and the FCC wants to employ for Internet backbone traffic negotiations, it is telling that Google itself has long employed a “commercially reasonable” standard in its own AdSense terms of service. It is also remarkable that Google would want to invite FCC scrutiny of its own anti-competitive, corrupt, and unaccountable business practices in Google’s dealings with, and blocking of, “edge” providers from its network.

In sum, Google, and other Internet Association member companies, have vastly underestimated the risk of unintended consequences to their own currently-unregulated, information services businesses of the FCC reclassifying broadband as a Title II telecommunications service.

They appear to imagine that they can detonate a regulatory “tactical nuke” that can maximally-regulate their competitors with no fallout risk or harm to them or civilians, just like policy makers imagined that they could use a “tactical nuke” in the Cold War that would only kill people, not destroy buildings, and not trigger mutual-assured-destruction nuclear war.

Those that imagine that the FCC could easily and surgically apply Title II regulation to specific companies in specific services in a specific certain process and timeframe are exceptionally naïve and misinformed. Washington is not the predictable mathematical world of engineering or computer programming. Washington is the much more uncertain and shifting world of public policy, arcane legal interpretation, politics, and public relations.

Google and other Internet companies pushing for reclassification should remember the old adage, be careful what you ask for, you might get it for yourself.